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Washington Addressing Safety Risks, Economic Benefits of Crude-by-Rail

Few economic commodities have the ability to generate controversy quite like crude oil, and a hearing last week in Olympia was no exception.

More than 700 protestors packed into a Department of Ecology hearing at the Red Lion Inn, decrying the safety risks the state is taking on as crude-by-rail shipments sky rocket to 3 billion gallons this year and more rail cars bearing the fuel travel across Washington from the Midwest, bound for export or refineries.

The protestors’ main message:  Send it somewhere else, or better yet don’t send it at all. State regulators are working on a study on oil train safety, but wanted public comment about the study before moving forward with a plan on ramping up the state’s response, planning and safety programs, likely in the 2015 legislative session.

Olympia Mayor Steve Buxbaum said 14 crude oil trains roll through Thurston County daily and, while no spills have occurred, disasters at the national level should be a warning sign for Washington.

“We need to be absolutely clear about the risks,” Buxbaum said. “One after another the environmental toll is growing. We must stop these trains.”

It speaks to the tangled, complicated relationship an environmentally conscious yet export-reliant state like Washington has with crude oil, which has long come in via tankers to Puget Sound-based refineries, but is more and more traversing the rail networks – and moving over rivers, aquifers, and through sensitive habitat like the Columbia River Gorge.

IMPROVING SAFETY – AND PAYING FOR THE COSTS

A derailment and spill would be catastrophic, but rail companies and the oil industry say they’re investing billions at the national level and $235 million in Washington state to ensure that won’t happen. Burlington Northern Santa Fe touts its safety record of zero spills caused by derailments, although a train carrying crude oil from the Bakken shale in North Dakota did derail in Seattle in July.

That was a wake-up call to regulators at the Department of Ecology that it has to be more prepared for potential crude-by-rail spills, said Dale Jensen, manager of Ecology spill prevention program. The study plays a pivotal role in this, and would frame what steps the state needs to take, but more importantly who would pay for it.

The study outlines $13.4 million in new spending for Ecology and the Utilities and Transportation Commission to do risk assessments, more planning, buy equipment, do more inspections, and other steps.

Ecology and the oil industry have a nationally recognized model for marine oil safety and response, funded by a 5 cent-per-barrel charge that brings in about $6 million annually. The idea is to do the same on the rail side, as well as requiring that companies have certificates saying they have enough money to pay for clean up from a large spill.

Oil interests had no opposition to shifting the tax to crude barrels shipped by rail, and believe it’s necessary funding for safety mechanisms, spill prevention and response, said Frank Holmes of the Western States Petroleum Association. Revenue had been declining as oil shipments via vessel declined, while crude oil transport by rail increased.

“It’s probably one of the best in the country,” Holmes said of the marine program. “There’s concerns out there that need to be addressed.”

Thursday’s meeting is but one example of growing opposition to oil trains in Washington state, but the state has limited options for how it can regulate rail traffic, which largely falls under federal authority. The federal government is moving to slow down trains bearing crude and require safer rail cars, and the rail industry is acting on its own to enhance safety standards and investment money in infrastructure improvements.

But one of the key elements in all of this is making it pencil out economically – and export terminals planned in the port of Vancouver and in Grays Harbor County would be a boost for that. Grays Harbor Commissioner Frank Gordon put it simply at the hearing. “We don’t need oil trains coming to Gray Harbor,” Gordon said. “It’s just not worthwhile.” The projects are under environmental review currently, with the Grays Harbor terminals needing permits approved after that, while the Vancouver facility would ultimately need Gov. Jay Inslee’s approval.

Inslee has said safety is of paramount concern with crude-by-rail traffic, but has also made decreasing the carbon emissions produced by fuel one of the most important elements of his first term’s environmental agenda.

“There’s huge public outcry,” Jensen said at Thursday’s meeting. “Things can happen in our state. (Inslee) is very concerned about that.”

INDUSTRIES TOUT ECONOMIC BENEFITS

Jared Larrabee, general manger of the Vancouver Energy terminal project, said his project would be the largest in Washington state, taking in up to 360,000 barrels daily when at full operation, but is also taking safety seriously. Building a new facility allows Tesoro and Savage Companies, which are developing the project, to install state-of-the-art safety mechanisms and equipment.

“We think that Governor Inslee has got this right,” Larrabee said. “Safety is of the absolute paramount importance to us. We can build in those safety measures specifically for this.”

Larrabee said Vancouver Energy will only accept newer, safer railcars that the U.S. Department of Transportation is requiring of rail companies transporting crude oil.

Domestic energy production in the U.S. has undergone a dramatic transformation in recent years due to increased crude oil extraction in North Dakota and north of there in Canada, and oil companies are working to expand that to tap resources in a number of states such as Colorado, New Mexico, and Texas.

This domestic production is supplanting foreign oil imports, but has left energy companies with a challenge of how to get their products to market – U.S. refineries are centered on coastlines, and Larrabee said those in the Gulf Coast and the East Coast have already displaced large quantities of foreign oil. Foreign oil imports are plummeting nationally – from 60 percent 10 years ago, to 32 percent last year, and to 21 percent next year, he said.

On the West Coast, refineries in California and Washington are changing their operations to begin accepting shipments of crude-by-rail, Holmes said. Three out of the five refineries in this state now have offloading facilities for rail transport, and the other two are expecting to soon, he said.

Washington stands out because it is the closest geographically to the oil drilling operations, making it the cheapest location to ship a barrel of crude to a deep water port, Larrabee said. The terminal projects on the Columbia River and Grays Harbor County stand to reap economic benefits from that, he said.

The Vancouver project is promoted as generating 320 construction jobs, 176 fulltime operating jobs, $2 billion in economic activity and $22 million in one-time tax revenue. Another $7.8 million would come in annually. The Grays Harbors projects would create about 85 permanent jobs.

The refineries in Washington, on the other hand, are not planning to expand even with crude-by-rail increasing, Holmes said. Crude oil brought in by rail would supplant declines in oil drilled in Alaska and transported by tanker to the Puget Sound, Holmes said. The export terminals would most likely be shipping more crude oil to California refineries and, while it might seem strange, into Alaska.

“We’re in an unprecedented age when it comes to freeing ourselves of foreign oil sources,” Larrabee said. “The refineries are highly dependent on input product and input pricing. The refineries are a huge economic engine. The reality is, Washington – Vancouver in general – is the closest deep water port you can get from those Midwest (drilling sites).”

BUT IS IT WORTH THE RISK?

To environmental groups and other opponents of crude-by-oil transport in Washington, this amounts to the state assuming huge risks for marginal economic benefits. As many speakers at Thursday’s meeting pointed out, a massive train derailment and spill would produce one of the worst environmental calamities in state history.

Thurston County Commissioner Karen Valenzuela said the proposal only serves to produce more profits for large oil companies who extract the crude. Washington would act as a pass through for crude bound for refineries in other states.

“Let’s do something that makes more sense than enriching those who are already rich,” Valenzuela said.

But Gary Chandler, vice president of government affairs for the Association of Washington Business, noted that exports are a key component of Washington’s economy, and is the number one state in the U.S. in terms of exporting goods.

“We have a choice of keeping the jobs here,” Chandler said. “You can’t ask for better jobs. For the workers, these are some of the best jobs. We’re a trade-dependent state.”


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